The Reel Thing

Coke's Columbian connection

Since he became chairman of Coca-Cola (1981 sales: more than $6 billion) last March, Cuban-born Roberto Goizueta has added new life to the once staid and secretive company. He has revitalized sales and marketing efforts and erased a lead that Pepsi-Cola had opened in the crucial race for grocery store business. Last week he uncapped his most stunning announcement: the Atlanta-based bottler will spend about $820 million in cash and stock to buy Columbia Pictures (1981 sales: $686.6 million).

The deal will push Coke into the forefront of the entertainment industry. It will give the firm access to Columbia's studios and its library of 3,000 films and 10,000 television programs. Five television stations and twelve radio stations that Columbia is buying are also part of the deal.

The takeover is attractive to Columbia, the last of Hollywood's independent studios, because it provides access to Coke's vast reservoir of cash. Those funds will allow the film producer to compete with bigger rivals like Paramount and Universal Pictures. Both of those firms have already become subsidiaries of larger corporations that can provide the financing for developing movies and TV shows.

On Wall Street, however, investors did not generally think that Coke would go better with Columbia. The beverage firm's stock dropped 2 1/4 points the day of the announcement and 1 3/8 more the following day. Coca-Cola finished the week at 31 1/4, compared with 34 3/8 the week before. Said the portfolio manager of one of the largest pension funds, who was without a Coke or a smile: "I think Coca-Cola's paying too much, and I'm not excited about Columbia." The offer works out to about $70 a share for the movie firm, which had been trading for about $42 a share immediately before the merger was announced.

Analysts also wondered what Coca-Cola, which has promised not to interfere with Columbia's management, knows about the entertainment business. Goizueta inists that his firm has already been in that field. Says he: "We felt entertainment made a lot of sense for Coca-Cola for the simple reason that we've been in the entertainment business for almost 100 years. After all, we sell a little moment of pleasure, and that's what entertainment is."

The Coke chairman also points out that he is acquiring a solid company that has been doing very well. Says he: "We're not buying a turnaround situation. We're buying a very successful operation." Frank Price, a former screenwriter who has headed Columbia's motion picture division since 1979, is a sharp-eyed budget watcher in an era when studios spend $10 million on average per film and must earn back nearly three times that much just to break even. Columbia's recent big moneymakers include Kramer vs. Kramer, The Blue Lagoon and Stir Crazy. Among the TV hits it distributes are Hart to Hart, Fantasy Island and Barney Miller. Says Roy Furman, a leading film industry analyst: "Under Price, Columbia has had a greater percentage of hits on less cost per picture than any other studio."

Coca-Cola can test that record in May when Columbia releases Annie. The film version of the Broadway musical cost $40 million to make, and it will have to be a blockbuster to earn a profit. Regardless of how the film fares, however, Columbia and its shareholders now have less need for worry. In the soft-spoken Goizueta, they have found their own Daddy Warbucks.

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